Question 17Consider the following two lotteries:L4: 50% chance of winning £1,000, 50% chance of winning nothingL5: 20% chance of winning each of £0, £250, £500, £750 and £1,000Which of the following are true (select all correct answers):A L4 second-order stochastically dominates L5B) Any risk-averse individual would prefer L5 to L4DAny risk-neutral individual would prefer to L5L5 second-order stochastically dominates L4E Any risk-neutral individual would prefer L5 to L4Any risk-averse individual would prefer L4 to L5G) Any risk-loving individual would prefer L4 to L5H) Any risk-loving individual would prefer L5 to L4

A person is risk neutral if he/she considers only the Expected Value of lottery ticket. Risk averse…

Consider the following two lotteries: L4: 50% chance of winning £1,000, 50% chance of winning nothing L5: 20% chance of winning each of £0, £250, £500, £750 and £1,000 Which of the following are true (select all correct answers): A L4 second-order stochastically dominates L5 B) Any risk-averse individual would prefer L5 to L4 Any risk-neutral individual would prefer to L5 L5 second-order stochastically dominates L4 E) Any risk-neutral individual would prefer L5 to L4 (F) Any risk-averse individual would prefer L4 to L5 G Any risk-loving individual would prefer L4 to L5 H) Any risk-loving individual would prefer L5 to L4

Consider the following two lotteries: L4: 50% chance of winning £1,000, 50% chance of winning nothing L5: 20% chance of winning each of £0, £250, £500, £750 and £1,000 Which of the following are true (select all correct answers): A L4 second-order stochastically dominates L5 B) Any risk-averse individual would prefer L5 to L4 Any risk-neutral individual would prefer to L5 L5 second-order stochastically dominates L4 E) Any risk-neutral individual would prefer L5 to L4 (F) Any risk-averse individual would prefer L4 to L5 G Any risk-loving individual would prefer L4 to L5 H) Any risk-loving individual would prefer L5 to L4

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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